Q3 GDP: 2.0%

posted at 9:21 am on October 26, 2012 by Ed Morrissey

Looks like I had it about right yesterday, after the latest durable-goods report showed some of the lost ground being regained in the final month of the third quarter. The economy expanded in the third quarter at an annualized rate of 2.0%, a slight improvement over Q2′s 1.3% but still stuck firmly in the stagnation band. One reason, though, is because the federal government spent at a faster rate than earlier:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.0 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see box below). The “second” estimate for the third quarter, based on more complete data, will be released on November 29, 2012.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and residential fixed investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the third quarter primarily reflected an upturn in federal government spending, a downturn in imports, an acceleration in PCE, a smaller decrease in private inventory investment, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by downturns in exports and in nonresidential fixed investment.

Here’s the key point on federal spending:

Real federal government consumption expenditures and gross investment increased 9.6 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second. National defense increased 13.0 percent, in contrast to a decrease of 0.2 percent. Nondefense increased 3.0 percent, in contrast to a decrease of 0.4 percent. Real state and local government consumption expenditures and gross investment decreased 0.1 percent, compared with a decrease of 1.0 percent.

That boost has a lot to do with the improvement, especially since exports actually fell in the quarter by 1.6%. Personal consumption kept pace with the overall number at 2.0%, though — not enough to give any indication of a massive consumer-fueled growth spurt on the horizon. Real final sales of domestic product came in at 2.1%, which shows that the 2.0% growth wasn’t due to inventory inflation, as was the case at the end of 2009.

Reuters points out the government-fueled number, and also the fact that the year is still coming in lower than last year:

The U.S. economy expanded at a slightly faster 2 percent annual rate from July through September, buoyed by an uptick in consumer spending and a burst of government spending. …

The pickup in gross domestic product may help President Barack Obama’s message that the economy is improving.

No one who understands economics will argue that a 2.0% quarter shows an improving economy, especially not when that number relied on federal government spending increases. Instead, people will focus on the fact that we’re nowhere near a rate of growth that will even allow job creation to keep up with population growth, let alone put the unemployed back to work. In fact, we’re close to net job loss level numbers — and I suspect that the second iteration of Q3 GDP due in a month may drop the number a bit lower than we’re seeing today.

Update: Daniel Halper reminds us that this is less than half of what the White House projected growth would be this year:

The average GDP growth for the first three quarters of this year is 1.77 percent, according to data released by the the Bureau of Economic Analysis this morning. That is less than half of what the White House predicted GDP growth would be this year, and less than a third of what the Obama administration projected when it first took office. …

When Obama first came into office, in 2009, the White House projected that GDP growth this year (2012) would be 4.6 percent. Then, in 2010, the White House downplayed that projection to 4.3 percent. And last year, the forecast looked even gloomier, at 3.6 percent.

But as the numbers show, the three quarter average of this year came in even worse: 1.77 percent.

That’s more than just an academic exercise. Budget projections depend on economic assumptions about growth, which directly impacts revenue and indirectly impacts demand on safety-net programs. A miss of this magnitude has significant implications for White House budget claims — especially on deficits.

Blowback

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Comments

It’a also interesting that you mention Carter, when in fact Reagan passed a much larger stimulus, as if active fiscal policy has always been a partisan issue.

You might try reading the financial press instead of parroting the observations of Glenn and other radio entertainers.

bayam on October 26, 2012 at 10:14 AM

Oy. Reagan passed increased defense spending, which is well-known to be quite stimulative. Obama pointedly refused to increase defense spending in 2009 as part of his stimulus, opting instead for a serious of transfer payments that were not and should not have been expected to be stimulative.

ghostwriter on October 26, 2012 at 10:18 AM

And it wasn’t the defense spending that kicked off the 30-year period of prosperity; it was the tax cuts.

All I know is that Bush screwed up by not getting Saddam at the time and that he lied to us with no uncertainty that it was a mistake.

astonerii on October 26, 2012 at 10:15 AM

Oh, please.

The only reason Pappy Bush was able to assemble that international coalition to kick Saddam out of Kuwait was by promising many of the countries joining (especially the ME ones) that the one and only mission was to evict Iraq from Kuwait and that’s all. And that was the condition the U.N. demanded in order for that coalition to get their official “blessing”.

He didn’t get Saddam at the time because his hands were tied. It’s that simple.

A miss of this magnitude has significant implications for White House budget claims — especially on deficits.

The last budget produced by a Republican House, Republican Senate, and Republican President (passed in 2006 for Fiscal Year 2007) produced a deficit under $161 Billion.

Then the Democrats won the 2006 mid-term elections, and on January 3, 2007 Nancy Pelosi became Speaker of the House, and Harry Reid became Senate Majority Leader.

Senators Obama, Biden, Clinton, and other Democrats took majority control of Washington, D.C. on January 3, 2007, and they “inherited” a RECOVERY that had beeen produced by the Bush Tax Cuts.

Even though rates went down under the Bush Tax Cuts, employment and revenue went UP. FY 2007 revenues were a whopping 44% LARGER than FY 2003 revnues.

The result was that the deficit produced by the FY 2007 Republican-majority budget was smaller than either of the deficits produced by the budgets passed by President Clinton with a Democrat Congress for FY 1994 and 1995. It’s true… look it up.

All of that drivel and you missed the point you were trying to make, but I repeat myself. The broken promise that cost GB the election was “Read my lips, no new taxes” which the Congress pawned Bush with. History is interesting if one reads it, instead of trying to rewrite it.

Fail.

Tenwheeler on October 26, 2012 at 10:18 AM

I already said that Bush lost due to Read My Lips. It became a trust issue. It got Perot to join the race. It cost him the election.

Of course, I already said that, above, on this thread, so repeating myself on that specific aspect was pointless.

We did not need a coalition with that many partners. We had not even remotely begun to draw down our forces at that time. Coalitions are great and all, but then again, leaving problems in place that later pop back up is not good policy. Leaving Saddam in place allowed the Jihadis to keep the PR campaign slogan that America is a Paper Tiger going, that they can attack without significant consequences. From that point forward Saddam spent his time making the United States look weak and impotent to do anything.

We did not need a coalition with that many partners. We had not even remotely begun to draw down our forces at that time. Coalitions are great and all, but then again, leaving problems in place that later pop back up is not good policy. Leaving Saddam in place allowed the Jihadis to keep the PR campaign slogan that America is a Paper Tiger going, that they can attack without significant consequences. From that point forward Saddam spent his time making the United States look weak and impotent to do anything.

astonerii on October 26, 2012 at 10:33 AM

Oh, please. All I did was simply repeat the facts, and your “response” above is nothing more than Monday Morning Quarterbacking after the fact.

Oh, please. All I did was simply repeat the facts, and your “response” above is nothing more than Monday Morning Quarterbacking after the fact.

F-

Del Dolemonte on October 26, 2012 at 10:38 AM

Not really Monday Morning Quarterbacking.
More like team mates telling the coach that he was wrong at the time he made the call and it coming up as being closer to reality than the coach’s assumptions. Sure, we got this touch down, but in the process they took out our star player in the first quarter.

We did not gain any good will from the rest of the world by having a huge coalition. It is like McCain playing to the media all the time, as if they are ever going to actually back him against a Democrat! I think we could have done just fine without France who was the most vocal about keeping Saddam in power because they had so many Nation to Nation deals going on with Saddam.

Ed-
I finally realized what you did there with your oft used pic of Ozero and the worker in the factory. The steel part that man is making, and Oliar stands behind, looks like some type mixing or compounding screw for some type of processing.

It has the design of a screw.

Yes, although there are always different perspectives, someone is getting screwed in the pic…..

If he is reelected, he is going to have to change or find himself even more isolated and increasingly despised.

Resist We Much on October 26, 2012 at 10:03 AM

Why should he have to change? He’ll be more flexible in a second term. He can do – or not do – whatever he wants.

PackerBronco on October 26, 2012 at 10:05 AM

You will notice that I wrote he will either have to change or himself even more isolated and increasingly despised. I have little doubt that it will be the latter although I think that the situation will become so perilous that even Democrats will be alarmed to a degree to force him to act.

He would never have been able to sustain sufficient public support to take down Saddam. Didn’t you learn anything from what happened to Bush’s son?

ghostwriter on October 26, 2012 at 10:40 AM

Bush’s son made even worse mistakes than his old man had.

Went in light, thought our superior weapons replaced boots on the ground. Tried to win hearts and minds. Left stay out zones in effect for months.

As for the argument that public support would have lacked. The Gulf War made war popular at the time. Everyone watched on CNN and felt like they were a part of it, LIVE. It was more of a video game for people back home than anything else.

Saddam’s Army at the time did not want to fight, in fact they gave up in droves before any shots were fired. Many of his generals at the time were defecting and they knew where to find him.

The First Gulf War gave Saddam a large amount of practice and information on how he was going to act in the second part.

But hey, its all conjecture right? Because it is not like I was there living through it at the time, watching SCUD missiles getting blown out of the air a few hundred meters over my head wearing MOP gear all the time or anything.

The liberals commenting on Romney: No matter what you say, there is no defense for Obama. You love to comment on Romney supposedly shipping jobs to China (at a time that he wasn’t even at Bain) but make absolutely no references to Owe shipping jobs to China (wind turbines) and Finland (expensive cars. There IS a big difference. Bain outsourced jobs with PRIVATE money as a PRIVATE business. Obama is outsourcing jobs with US Taxpayers’ money as President of the US. When one is in private business their responsibility is allegiance to that business; a totally different allegiance than expected when the US President!

Any name or negative comment you make about Romney can at least equally be applied to Obama. Obama and his followers are down to name calling simply because they have no record worth running on. There’s nothing positive to say about their candidate so they attack Romney.

But hey, its all conjecture right? Because it is not like I was there living through it at the time, watching SCUD missiles getting blown out of the air a few hundred meters over my head wearing MOP gear all the time or anything.

astonerii on October 26, 2012 at 10:53 AM

Oh please. As if your experience makes you an expert on geopolitics or domestic US politics. In ’03 we went into Iraq with huge public support that wilted as soon as things got tough, and the same would have happened in ’92. This country doesn’t have the stomach to do what it takes to win that kind of war: We had to decimate Germany and Japan to beat them. When have we ever shown that kind of will since then? (All this being said, I’m glad that you and your friends made it back safely, and I’m sorry for the ones that you may have lost over there.)

Oh please. As if your experience makes you an expert on geopolitics or domestic US politics. In ’03 we went into Iraq with huge public support that wilted as soon as things got tough, and the same would have happened in ’92. This country doesn’t have the stomach to do what it takes to win that kind of war: We had to decimate Germany and Japan to beat them. When have we ever shown that kind of will since then? (All this being said, I’m glad that you and your friends made it back safely, and I’m sorry for the ones that you may have lost over there.)

ghostwriter on October 26, 2012 at 11:07 AM

Things got tough because Bush went in light under Rumsfeld’s advice. Shock and Awe. The problem is that the shock and the Awe did not last long. The final outcome was never specified. Victory, we will know it when we see it is not a policy for keeping public support. Public Support can be kept if we tell them what the goals are, and then accomplish those goals, one at a time.

Oh please. As if your experience makes you an expert on geopolitics or domestic US politics. In ’03 we went into Iraq with huge public support that wilted as soon as things got tough, and the same would have happened in ’92. This country doesn’t have the stomach to do what it takes to win that kind of war: We had to decimate Germany and Japan to beat them. When have we ever shown that kind of will since then? (All this being said, I’m glad that you and your friends made it back safely, and I’m sorry for the ones that you may have lost over there.)

ghostwriter on October 26, 2012 at 11:07 AM

Yep. Baghdad in what was it, ten days? I will never forget that around day six we had to pause because of sandstorms, and the old media poobahs immediately screamed “quagmire!”.

In a $15 trillion economy 2 percent is $300 billion in a year. For the quarter that would be $75 billion. In the 3rd Qtr our US debt grew by $209 billion. So to get $75 billion in GDP growth the government had to go into debt by additional $209 billion. Netting 35¢ per dollar of new debt. What a deal.

Things got tough because Bush went in light under Rumsfeld’s advice. Shock and Awe. The problem is that the shock and the Awe did not last long. The final outcome was never specified. Victory, we will know it when we see it is not a policy for keeping public support. Public Support can be kept if we tell them what the goals are, and then accomplish those goals, one at a time.

astonerii on October 26, 2012 at 11:16 AM

Perhaps. But I doubt it. People were talking about the so-called “Highway of Death” for years after fact, as if the animals that we were bombed on that stretch of road didn’t have it coming. All I’m saying is that it’s not as cut and dried as you seem to suggest. For my part, I don’t like the idea of taking and holding ground, because it gives our enemies–foreign and domestic–a nice big set of targets to shoot at.

No one who understands economics will argue that a 2.0% quarter shows an improving economy, especially not when that number relied on federal government spending increases. Instead, people will focus on the fact that we’re nowhere near a rate of growth that will even allow job creation to keep up with population growth, let alone put the unemployed back to work. In fact, we’re close to net job loss level numbers — and I suspect that the second iteration of Q3 GDP due in a month may drop the number a bit lower than we’re seeing today.

Ed Morrisey

Ed, wrong. The rate of inflation is 1.75% over the same period. If you’re arguing that .25 % is growth, then I have a bridge in Brooklyn to sell you. The jobs growth number is mostly government jobs/spending.

Perhaps. But I doubt it. People were talking about the so-called “Highway of Death” for years after fact, as if the animals that we were bombed on that stretch of road didn’t have it coming. All I’m saying is that it’s not as cut and dried as you seem to suggest. For my part, I don’t like the idea of taking and holding ground, because it gives our enemies–foreign and domestic–a nice big set of targets to shoot at.

ghostwriter on October 26, 2012 at 11:26 AM

So you are arguing that you do not support the steps required to win a war and at the same time telling me how wrong my positions are.

You are right, I am not a great war general, just a simple E-5 when I left the Marines. Of course, that said, I am capable of reading different scenarios written by Great War Generals and decide which of their actions would have been better or worse. We had these discussions at the time of the First Gulf War and since. We had these arguments in the lead up to the Second Iraq War, during the War, and now after.

Gee, one would never guess that there are 23 million unemployed or out of the work force. That poverty levels are up, food stamp recipients the highest number in history, the overall welfare spending tripled.

He’s a mostly ignorant troll who thinks he sounds informed if he repeats things he read in a Krugman column like “balance sheet recession.”

Crap like “balance sheet recession” is really nothing more than a poor justification for increased government regulation and spending. Unfortunately, every time we’ve tried it (FDR, Carter, Obama) we’ve seen nothing but continued economic problems. But the left continues to push it despite the fact that math crushes their ideology every time…

PetecminMd on October 26, 2012 at 9:50 AM

Keynesian economics is an irresistible drug for leftists. I mean, what do you expect to happen if you suggest to a big-government type that they can improve the economy by spending more government money?

It’s not that root of the Keynesian theory is completely wrong, but in practice it always gets simplified to “spend more money and get prosperity.” So in practice Keynesian economics fails every time it’s tried.

On November 7th it will be revised down to 1.5% and blamed on President-elect Romney.

MobileVideoEngineer on October 26, 2012 at 9:27 AM

..were I Romney, I would take all of the blame and downgrading — particularly the latter — I could get. Move them starting blocks back as far as you can go because the recovery that’s coming from common sense, head-out-of-our-asses policies and programs will make the difference much starker.

Day will come when a mention of Obama and his incompetence will cause people to expectorate on the sidewalk.

Now, when people make transactions in a free market, both parties will benefit — or they’d balk at the deal and it wouldn’t happen. So it makes sense that private consumption and investment would be included. It also makes sense to include net exports, as those are also free market transactions.

And in the normal course of things, it might make sense to include government expenditures, as fire protection, roads, defense and such all increase public prosperity. But because government expenditures are coerced, there is no guarantee that government spending is limited to transactions where value is produced.

Just using the formula, 100 Solyndras would be $50B in GDP. The EPA is $9B in GDP — can we really say that its positive effects are anywhere near that? The Department of Education counts as another $45B that serves mainly to fuel inflation in higher education costs. Bank and car maker bailouts are also counted as GDP. Another billion went to the Libya campaign, which seems to have made America less safe in the region.

Unfortunately, there’s no good way to merely include “good government” and exclude cronyism, waste, counterproductivity, and bad ideas. But with the G term making up 20% of the total GDP (3059.8/15075.7 in Q3), the misstatement caused by characterizing all government spending as beneficial is significant.

The government spiked 3rd quarter spending (at the expense of 2nd quarter spending?) and all that they could manage is 2.0% GDP growth? Pathetic.

besser tot als rot on October 26, 2012 at 12:32 PM

In a $15 trillion economy 2 percent is $300 billion in a year. For the quarter that would be $75 billion. In the 3rd Qtr our US debt grew by $209 billion. So to get $75 billion in GDP growth the government had to go into debt by additional $209 billion. Netting 35¢ per dollar of new debt.

Well, that makes it sound reasonable!
I understand how government spending is included in GDP, making war machines is an increase in wealth for the nation as a whole. Although I would like to see numbers that take out of consideration government transfer payments that end up being spent.

Well, that makes it sound reasonable!
I understand how government spending is included in GDP, making war machines is an increase in wealth for the nation as a whole. Although I would like to see numbers that take out of consideration government transfer payments that end up being spent.

astonerii on October 26, 2012 at 1:08 PM

You sound so bitter. Why did you enlist if you’re against the military so bitterly? Nobody forced you did they?

You sound so bitter. Why did you enlist if you’re against the military so bitterly? Nobody forced you did they?

DebraChicago on October 26, 2012 at 3:09 PM

Actually I argued that spending on military devices being counted in GDP growth should be counted in the GDP. I am bitter about the wealth transfer spending. You seem pretty stupid, does someone else help you get your Internets working so you can misread what other people write?